Zagat Remains a Profitable Brand

Does it matter that it hasn't won the web?

The New York Times ran a story over the weekend called “Zagat Survey Aims to Regain Its Online Balance,” about how the iconic maroon-colored print brand has yet to successfully gain traction online.

The crux of the Times article is an implicit criticism of Zagat for putting its restaurant reviews behind a paywall—on Zagat.com, only restaurant listings and a food-news blog are available for free viewing. Obviously, the paywall cuts down on clicks, and puts Zagat well behind its free competitors in traffic numbers. Yelp, for instance, which itself borrows the collated-survey (“crowdsourced”) review format that Zagat first developed decades ago, will win that game every time:

While online traffic comparisons are never exact, Zagat.com had 570,000 unique domestic Web visitors in September, according to the Nielsen Company, versus 9.4 million for Yelp. The Zagats say they actually have more than 1.2 million unique users worldwide.

But wait:

None of this means Zagat is in any immediate financial danger. While the Zagats refused to provide much specific financial information for this article, they did say their company is still profitable.

They are also quick to point out that it’s not at all clear that Yelp’s strategy of having dozens of salespeople selling local ads is superior to their approach of asking Web and mobile users to pay for listings.

Still profitable, behind a paywall? A strategy superior to local ads? Good heavens. What is Zagat, anyway, The Wall Street Journal for foodies? Actually, yes. While Yelp is a free-for-all, Zagat is a curated experience. Snobby? Sure. But some people are clearly still willing to pay for the informative and pithy one-liners and standardized rating system that Zagat provides, rather than having to scroll through thousands of customer reviews of varying quality and reliability that Yelp offers.

The Times piece quotes an analyst who disapproves of Zagat’s refusal to make their content available for free:

But while the company maintained its margins on the paper books, it was missing the opportunity to snare new customers who were trawling Google for information on specific restaurants.

“There is a huge degradation of your brand if you are not showing up on that first page of search results,” says Greg Sterling, an independent analyst who specializes in local content and advertising. “If you’re not there, you have to have a powerful, multifaceted alternative strategy, with public relations, advertising, a reality show or something.”

Or “something.” Like, have a brand that has immediate recognition and cachet in the real world, and have a business model that emphasizes people paying you money for things, rather than gaming search results and attempting to turn that recognition into profitability? Mr. Sterling goes on, later:

“Yelp is a local advertising vehicle for lots of small businesses, and there are billions of dollars out there, a big pie waiting to be fully eaten,” says Mr. Sterling, the analyst. “Zagat feels more tied to the past, so there isn’t the same perception of momentum or revenue opportunities.”

Emphasis on “waiting to be fully eaten.” Of course Yelp is going to get more CPMs, because of the nature of its format, and the fact that it’s made SEO a big priority. But surely the advertisements behind Zagat’s $24.95 a year paywall are much more valuable? That’s a big pie that is already being eaten.

How profitable is Yelp now, anyway? The Times piece does not say. It does note that “Google reportedly wanted to pay at least $500 million to acquire Yelp” in 2009, while another proposed sale of Zagat involved a figure somewhere under $200 million. (But there’s no confirmation of those figures, and neither sale went through.)

Point being, even if Yelp’s business model does happen to work for Yelp, that doesn’t mean that Zagat’s business model is bunk. The companies offer different products and have very different corporate histories. But as we often see in discussions of online brands, there is an awful lot of weight put on Yelp’s potential revenue here, while Zagat’s actual, current profitability is dismissed.

The Times piece ends with the claim that “If all the book revenue were to go away,” that Zagat would have to have “a couple of million people” paying $24.95 annual site membership or for its $9.95 annual mobile app to stay profitable. Fine, but why would all the book revenue “go away,” when those books are consistently on best-seller lists?

Admittedly, not every company can do well with the Zagat formula. If Nina and Tim Zagat had started their company in 2010, rather than 1982, they probably would have had no choice but to start giving away their content online for free, like all companies that start up without any name recognition. But as their story shows, they slowly and organically became known as tastemakers, offline and through word of mouth. The Times article points out that banks, ad agencies and other companies made a habit of ordering custom guides for their clients; “One year, Bank of America ordered five million [copies].”

Now, almost three decades after they self-published their first book, their brand name is synonymous with “taste.” Why shouldn’t they trade on that asset? Why shouldn’t they charge for their content, if people are willing to pay for it? It seems odd of the Times to so roundly criticize Zagat for not giving up the opportunity to make money one way now, in favor of the far-off potential of making money a different way in the future. And why does the Times article assume that “free,” “search-optimized,” and “viral” are best practices for all content providers? The Zagats haven’t given away any of their content for free, ever since the sale of their first book, and their company still makes money. Given the current state of publishing, that’s something.

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